How much did I really make this month? Finding your real profit

The month ends, you open your banking app and see a higher balance than last month. It looks like a good month. But that number doesn’t tell you how much you made: it may include payments for last month’s jobs, deposits for jobs you haven’t started yet, or money you already owe a subcontractor.

To know what you really kept, you need to separate three things that look mixed together in the bank.

1. Sales are not the same as cash

Your sales for the month are the jobs you finished or invoiced that month, not the deposits that arrived. An $8,000 invoice you sent on the 28th is this month’s sale even if the client pays you in 30 days. And the check that arrived on the 3rd for an August job is an August sale.

If you mix the two, a slow month can look good and a good month can look bad.

2. Separate the direct cost of each job

Direct costs are what you spent to do that particular job:

• Materials.
• Your crew’s labor, including overtime.
• Subcontractors.
• Equipment rental, fuel and trips for that job or route.

Sales minus direct costs is your margin: what the job leaves before paying for the business itself.

3. Then subtract business expenses

These are the costs that exist even in a month with no work: rent, phones, insurance, software, the office truck, your accountant and your own salary. Margin minus business expenses is your real profit.

An example with numbers

Picture a contractor with these numbers for the month (illustrative figures):

• Sales for the month: $40,000
• Direct costs of those jobs: $27,000 → a margin of $13,000 (32.5%)
• Business expenses: $8,500 → a real profit of $4,500

If $52,000 hit the bank that same month because three late invoices were paid, the balance would have said it was an excellent month. In reality the business made $4,500, and that is the number that helps you decide on prices, hiring and purchases.

Three habits to know it every month

1. Record every expense with the job it belongs to. A materials receipt with no job attached ends up hidden in “overhead.”
2. Close the month on the same date every time. That way you compare full months, not pieces.
3. Review the result with someone who explains it in your language. A report you don’t understand won’t help you decide.

Where to start

You don’t need to switch systems overnight. Start by separating sales, direct costs and business expenses with what you already use, and compare month over month. If you’d like to look at it together, in the free consultation we review your numbers and tell you what’s missing to see them clearly every month.

The examples in this article are illustrative and are not a substitute for advice from your CPA.

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